Question 1

Some economists argue that

Accepted Answer

A)   monetary policy should actively be used to stabilize the economy.
B)   fiscal policy should actively be used to stabilize the economy.
C)   fiscal policy can be used to shift the AD curve.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 2

Figure 21-5.On the figure,MS represents money supply and MD represents money demand. 1 to MD2 could be a result of A)  a decrease in taxes. B)  an increase in government spending. C)  an increase in the price level. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-5.A shift of the money-demand curve from MD1 to MD2 could be a result of

Accepted Answer

A)   a decrease in taxes.
B)   an increase in government spending.
C)   an increase in the price level.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 3

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

Accepted Answer

A)   the multiplier effect
B)   the crowding-out effect
C)   the accelerator effect
D)   None of the above is correct.E) A) and D)
F) A) and B)

Question 4

If the Fed conducts open-market purchases,the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) A) and B)
F) B) and C)

Question 5

What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) B) and D)
F) A) and B)

Question 6

The process of the investment accelerator involves

Accepted Answer

A)   positive feedback from aggregate demand to investment.
B)   negative feedback from aggregate demand to investment.
C)   positive feedback from aggregate supply to investment.
D)   negative feedback from aggregate supply to investment.E) A) and B)
F) B) and C)

Question 7

In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A)   the MPC is small and changes in the interest rate have a small effect on investment
B)   the MPC is small and changes in the interest rate have a large effect on investment
C)   the MPC is large and changes in the interest rate have a small effect on investment
D)   the MPC is large and changes in the interest rate have a large effect on investmentE) B) and C)
F) A) and D)

Question 8

Tax cuts

Accepted Answer

A)   and increases in government expenditures shift aggregate demand right.
B)   and increases in government expenditures shift aggregate demand left.
C)   shift aggregate demand right while increases in government expenditures shift aggregate demand left.
D)   shift aggregate demand left while increases in government expenditures shift aggregate demand right.E) B) and C)
F) All of the above

Question 9

To offset increased pessimism by households,the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households,the government...

Question 10

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 11

Supply-side economists focus more than other economists on

Accepted Answer

A)   how fiscal policy affects consumption.
B)   the multiplier affect of fiscal policy.
C)   how fiscal policy affects aggregate supply.
D)   the money supply.E) B) and C)
F) A) and D)

Question 12

Keynes argued that aggregate demand is

Accepted Answer

A)   stable,because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand.
B)   stable,because changes in consumption are mostly offset by changes in investment and vice versa.
C)   unstable,because waves of pessimism and optimism create fluctuations in aggregate demand.
D)   unstable,because of long and variable policy lags that worsen economic fluctuations.E) None of the above
F) A) and C)

Question 13

In the graph of the money market,the money supply curve is

Accepted Answer

A)   vertical.It shifts rightward if the Fed buys bonds.
B)   vertical.It shifts rightward if the Fed sells bonds.
C)   upward sloping.It shifts rightward if the Fed buys bonds.
D)   upward sloping.It shifts rightward if the Fed sells bonds.E) None of the above
F) B) and C)

Question 14

In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 15

According to the liquidity preference theory,an increase in the overall price level of 10 percent

Accepted Answer

A)   increases the equilibrium interest rate,which in turn decreases the quantity of goods and services demanded.
B)   decreases the equilibrium interest rate,which in turn increases the quantity of goods and services demanded.
C)   increases the quantity of money supplied by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged.
D)   decreases the quantity of money demanded by 10 percent,leaving the interest rate and the quantity of goods and services demanded unchanged.E) B) and D)
F) A) and B)

Question 16

If the multiplier is 5,then the MPC is

Accepted Answer

A)   0.05.
B)   0.5.
C)   0.6.
D)   0.8.E) B) and D)
F) All of the above

Question 17

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Accepted Answer

A)   rises and the aggregate quantity of goods demanded rises.
B)   rises and the aggregate quantity of goods demanded falls.
C)   falls and the aggregate quantity of goods demanded rises.
D)   falls and the aggregate quantity of goods demanded falls.E) All of the above
F) A) and B)

Question 18

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   a decrease in the money supply
B)   a reduction in tax rates
C)   a decrease in government purchases
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 19

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

A)   decrease the money supply
B)   increase government expenditures
C)   increase taxes
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 20

If there is excess demand for money,then people will

Accepted Answer

A)   deposit more money into interest-bearing accounts,and the interest rate will fall.
B)   deposit more money into interest-bearing accounts,and the interest rate will rise.
C)   withdraw money from interest-bearing accounts,and the interest rate will fall.
D)   withdraw money from interest-bearing accounts,and the interest rate will rise.E) None of the above
F) A) and B)

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

An increase in the money supply decreases the equilibrium interest rate and shifts the aggregate-demand curve to the right.

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Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

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Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

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Some economists argue that

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The process of the investment accelerator involves

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What actions could be taken to stabilize output in response to a large decrease in U.S.net exports?

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According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

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In the graph of the money market,the money supply curve is

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According to the liquidity preference theory,an increase in the overall price level of 10 percent

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Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD1 to MD2 could be a result of

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Supply-side economists focus more than other economists on

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If there is excess demand for money,then people will

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Keynes argued that aggregate demand is

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If the Fed conducts open-market purchases,the money supply

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Which of the following tends to make the size of a shift in aggregate demand resulting from a tax cut smaller than it otherwise would be?

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If the multiplier is 5,then the MPC is

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In 2009 President Obama and Congress increased government spending.Some economists thought this increase would have little effect on output.Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

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Tax cuts

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In liquidity preference theory,an increase in the interest rate,other things the same,decreases the quantity of money demanded,but does not shift the money demand curve.

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To offset increased pessimism by households,the government may _____ government spending and/or _____ taxes.

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Figure 21-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-5.A shift of the money-demand curve from MD₁ to MD₂ could be a result of

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To offset increased pessimism by households,the government may _ government spending and/or _ taxes.

Correct Answer
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